About Me

Known principally for his weekly political columns and his commentaries on radio and television, Chris Trotter has spent most of his adult life either engaging in or writing about politics. He was the founding editor of The New Zealand Political Review (1992-2005) and in 2007 authored No Left Turn, a political history of New Zealand. Living in Auckland with his wife and daughter, Chris describes himself as an “Old New Zealander” – i.e. someone who remembers what the country was like before Rogernomics. He has created this blog as an archive for his published work and an outlet for his more elegiac musings. It takes its name from Bowalley Road, which runs past the North Otago farm where he spent the first nine years of his life. Enjoy.

Bowalley Road Rules

The blogosphere tends to be a very noisy, and all-too-often a very abusive, place. I intend Bowalley Road to be a much quieter, and certainly a more respectful, place.So, if you wish your comments to survive the moderation process, you will have to follow the Bowalley Road Rules.These are based on two very simple principles:Courtesy and Respect.Comments which are defamatory, vituperative, snide or hurtful will be removed, and the commentators responsible permanently banned.Anonymous comments will not be published. Real names are preferred. If this is not possible, however, commentators are asked to use a consistent pseudonym.Comments which are thoughtful, witty, creative and stimulating will be most welcome, becoming a permanent part of the Bowalley Road discourse.However, I do add this warning. If the blog seems in danger of being over-run by the usual far-Right suspects, I reserve the right to simply disable the Comments function, and will keep it that way until the perpetrators find somewhere more appropriate to vent their collective spleen.

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Wednesday, 22 June 2011

Buying Back The Farm

On The Right Track: But Labour's embrace of public ownership owed less to the party's socialist ideology than it did to rescuing privately-owned infrastructural companies that were too important to fail. If Labour really is interested in "buying back the farm" there are many well-tested ways of going about it.

THERE WAS SOMETHING immensely reassuring about Dr Don Brash’s outrage. His angry media release, in which he railed against Trevor Mallard’s “wanton economic thuggery”, vividly illustrated the Right’s abject terror at even the threat of effective state intervention in the economy.

All it had taken was a warning from Mr Mallard and his colleague, Clare Curran, that a future Labour Government would review and, if necessary, revoke legislatively, any contract/s conferring monopoly wholesale powers on the company (or companies) chosen to roll-out ultra-fast broadband across New Zealand.

According to Dr Brash, such statements – even when uttered by Opposition MPs – amount to nothing less than “economic sabotage”, and immediately render the political party responsible “unfit for the Treasury benches”.

Strategically-speaking, Dr Brash’s outrage was extremely unwise. One should never allow one’s enemies to identify the weak-points in your defensive edifice. But identify them he did: warning that: “The threats about retroactive increases in fines for breaches of requirements are especially insidious. Mr Mallard may just as well have erected a sign at Wellington airport saying, ‘Invest here at your peril. If we get in, all bets are off.’”

In those two pithy sentences, Dr Brash revealed to Labour exactly how it could prevent the National-led Government’s planned privatisation of state assets. They also show how, if it was of a mind to do so, Labour might set about “buying back the farm”.

A simple statement from the Labour Party that any sale of publicly owned businesses would be overturned legislatively and the purchaser/s compensated with slow-maturing government bonds, would instantly send potential investors running (and quite probably screaming) in the opposite direction.

But, in the nine years it was out of power (1990-1999), the Labour Party refused to issue any such threat, a fact that speaks volumes about its true level of commitment to the maintenance and revitalisation of a mixed, social-democratic economy.

For a brief period during the early 1990s the Alliance and NZ First did that job for them, with both of the insurgent parties promising to take the privatised state assets back into public ownership. The exigencies of coalition government, however, proved incompatible with the Alliance’s and NZ First’s re-nationalisation programmes – to the point where, by 2001, the very mention of the idea was enough to send Jim Anderton into a towering rage.

One of the reasons for abandoning the policy was its enormous cost. If the purchasers of state assets were to be fully compensated for the loss of their property rights the state would have to come up with nearly $20 billion. That international lenders would stump up the cash for such an ideologically passé programme was highly unlikely. Nor was outright confiscation a realistic option. (Not if one wanted to continue sending expensive airliners around the world without having them impounded.)

There are, of course, many more ways to skin a privatised cat than by re-purchasing it at market price or confiscating it outright, but so long as Labour remained uninterested (except when required to rescue the key infrastructural companies Air NZ and Tranzrail from abject market failure) no one was very interested in discovering what these might be.

To facilitate this process of discovery, it is necessary to take a look at how revolutionary regimes have handled the task of moving from an economy dominated by the private sector to one controlled, at least at the level of its “commanding heights”, by the state.

In this respect, the People’s Republic of China offers some interesting models.

The final victory of Mao’s People’s Liberation Army in 1949 did not, as many right-wingers probably assume, lead to the immediate socialisation of the means of production, distribution and exchange. In reality, the transition from capitalism to socialism took the best part of a decade.

The most successful technique for socialising private concerns involved a law requiring private and publicly-listed companies to issue shares to the state. Initially, this public shareholding was quite small – 5 to 10 percent – just enough to ensure that at least one of the company’s board of directors was an appointee of the government.

Not surprisingly, the passage of this law caused huge alarm among private investors, most of whom made haste to sell their shares to whoever was willing to buy them. With the price of publicly-listed companies’ shares plummeting, the opportunity naturally arose for the state to step in and acquire (at a huge discount) an even greater share of the nation’s leading businesses. [Labour Finance Minister, Michael Cullen, could have done the same with Tranzrail when their shares hit rock-bottom in 2003. His refusal to do so cost the taxpayers approximately $400 million!]

With the socialist writing now extremely clear on China’s wall, the remaining large-scale privately-owned Chinese businesses negotiated whatever deals they could with the Communist Government and exited the market. By 1960 the private-sector economy of China had all but ceased to exist.

China’s re-embrace of the market in the 1980s offers ample proof that the process is readily reversible (even if “Capitalism with Chinese Characteristics” is a very different beast from the neo-liberal variety familiar to us in the West).

It should be clear, however, even from this brief description of the socialisation of the Chinese economy, how very right Dr Brash was to be alarmed at what he called the “political caprice and retrospective vandalism” of Mr Mallard. The financial spigot that prevents capitalism from becoming fatally dehydrated is, in practice, pathetically simple to shut off. Investors confronted with the prospect of even modest state interference at the microeconomic level will almost always cash-up and run.

And, of course, such microeconomic intervention is almost always complemented by a series of equally “persuasive” macroeconomic “reforms” – particularly in relation to taxation and the re-organisation of the labour market.

The deliberate undermining of investor confidence, combined with a concerted weakening of managerial prerogatives by the state and its legislatively empowered trade union allies, is all that a genuinely socialist government really needs to do to send the edifice of capitalism crashing to the ground.

10 comments:

Anonymous
said...

Another way at looking at imvestor confidence is not so much optimism but trust. If your experience with a political party is that they don't give a fig about the truth, that their word is worth nothing, and your property is in their hands, you would be mentally deranged to have anything to do with them.

In 1953 Mao forced the last remaining private companies into state hands. Those who declined the offer were re-educated, after professing their crimes against the peasants, often with a bullet to the back of the head.To re-write contact law is the thin edge of a very dangerous wedge. Would having your bank impose a lodger in your house, at your expense, to ensure that its financial investment in your mortgage is well manged, not send you running.

Oh, Labour get it alright, and it bluddy terrifies them! That bike crash must have rattled Trev's marbles for capitalist him to start talking nationalisation of any form.

This will be Labour's epitaph:"But, in the nine years it was out of power (1990-1999), the Labour Party refused to issue any such threat, a fact that speaks volumes about its true level of commitment to the maintenance and revitalisation of a mixed, social-democratic economy."

I don't really know what 'slow maturing' government bonds are. Do you mean long term government bonds with a low coupon rate, that are likely to be offered at a price which makes them unsaleable? Far easier to infer that the central bank's balance sheet can be used to purchase outstanding debt required for compensation. Of course, that would never happen while credit rating agencies remain the main point of reference for fiscal policy.

Mr Trotter gets a ratings downgrade for this one. Not sharp enough analysis.

Dr D’s lancing of the Duck is all about whacking Key 3 times and nasty Labour 2 times out of every 5 whacks.

A lame attempt granted. Both an effetely way to do it (given that Act is all over the place on the Bill in question) and way OTT in terms of aggressiveness (smacks of Dr D hankering for some coverage through intemperate language).

Take it from wise old Rumy, the Duck quacking in a time filler at the Committee Stage of this Bill simply isn’t that great a risk to doing business here. Rarely should one take the Duck seriously and never at the Committee of the Whole.

No. It is really about appealing to tribal loyalties. Dr D cannot claim he is waiting to assist the nice Mr Key (like an undertaker waits for a corpse) if he is forever attacking the “do-no-wrong” nice Mr Key. So he has gotta to spread it around (Dr D has much to give after all). Being nasty to the nasty Labour Party must mean that you are really the nice PM’s secret friend and willing helper.

Rumy thinks Dr D and Mr Key would be overjoyed if Labour adopted the advice offered in Mr Trotter’s clarion call to commit to making deals done under the law today void if ever there was a change of govt tomorrow. It would ensure Labour is unelectable for a decade because of its own economic stupidity.

And when Nasty Labour finally got elected all those horrible barrow boys of the City of London would suck the money outta dear old dotty NZ faster than a pretty girl empties your wallet.

Chris, for what it's worth, I and a few other Perigologists (sad, I know) are pretty sure that those words were written by Lindsay Perigo -- now Press Secretary to ACT's Parliamentary leader -- for Brash. The PR from which they derived has his trademarks all over it.

"[Labour Finance Minister, Michael Cullen, could have done the same with Tranzrail when their shares hit rock-bottom in 2003. His refusal to do so cost the taxpayers approximately $400 million!]"

Except that you can add to the $400 million the ongoing costs of losses and purchase of capital stock and rehabilitation of tracks and .... and ....

Which really raises the central question and that is why on God's green earth would a government want to own all the commercial failures if it wants to lead a vibrant and growing economy. Oh wait ......... now I get it.